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Crypto exchange has substantial ‘missing’ assets, FTX lawyer says

Sam Bankman-Fried speaks during a House Financial Services Committee hearing in December 2021. (Stefani Reynolds/Bloomberg News)

A lawyer for collapsed cryptocurrency exchange FTX said at a bankruptcy hearing on Tuesday that “a substantial amount of assets” belonging to the company have “either been stolen or are missing.”

In an earlier bankruptcy filing, the company said it owes its top 50 creditors more than $3 billion.

The comments about missing assets came from FTX attorney James Bromley in U.S. Bankruptcy Court for the District of Delaware, which held a hearing for the fallen crypto giant.

Sam Bankman-Fried charmed Washington. Then his crypto empire imploded.

At the hearing, Bromley also described FTX as a company “run by inexperienced and unsophisticated individuals,” adding that “some or all of them were also compromised individuals.” FTX, he said, “is one of the most abrupt and difficult company collapses in the history of corporate America.”

The revelations sparked more questions about the implosion of what had been considered a cornerstone of the nascent digital asset industry. Regulators, lawyers and investors are struggling to understand precisely what happened at FTX, as its undoing continues to send shock waves through the interconnected crypto economy.

FTX filed for bankruptcy this month after a bank run caused a liquidity crisis. Shortly after, the company’s 30-year-old chief executive and co-founder, Sam Bankman-Fried, resigned. “What we have is a worldwide organization, but an organization that was run effectively as a personal fiefdom of Sam Bankman-Fried,” Bromley told the court.

A message left for Bromley’s office at his New York firm, Sullivan & Cromwell, was not immediately returned. A message to Bankman-Fried was not immediately returned.

The Justice Department, Securities and Exchange Commission and Commodity Futures Trading Commission have launched probes of FTX. They are investigating whether the exchange skirted rules on safeguarding consumer deposits and relationships with trading affiliates, said four people familiar with the inquiries.

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The Southern District of New York’s cybercrime unit has also opened a criminal investigation of FTX, Bromley told the court Tuesday. Bromley said he is in “constant communication” with that office, as well as the Justice Department, the SEC, the CFTC and other regulators at the state level and abroad.

Bromley said he is fielding requests from lawmakers in the House and Senate to have John J. Ray III, FTX’s new CEO, testify in December. The Senate Banking Committee, Senate Agriculture Committee and House Financial Services Committee are all planning to hold hearings on the implosion of Bankman-Fried’s crypto empire next month.

In a filing last week, Ray, who has been brought in to oversee the company’s restructuring, described a firm whose communication and record-keeping were in disarray.

“One of the most pervasive failures of the business in particular is the absence of lasting records of decision-making,” Ray said.

Last week one of the nation’s most prominent lawyers filed a class-action lawsuit seeking to extract extensive sums from Bankman-Fried and celebrities who appeared in advertisements or otherwise endorsed FTX, including NFL quarterback Tom Brady, supermodel Gisele Bündchen, comedian Larry David, NBA player Stephen Curry and tennis player Naomi Osaka.

The FTX bankruptcy has affected a number of other crypto companies and their customers. They include BlockFi, a lender to which FTX had given a credit facility, or ongoing loan, of $400 million last summer. The loan has not been fully drawn and, because it can’t access the rest of the money, BlockFi said in a Nov. 10 statement that it was pausing withdrawals and “was not able to operate business as usual.”

Genesis, another lender, said in a tweet thread last week that “FTX has created unprecedented market turmoil, resulting in abnormal withdrawal requests which have exceeded our current liquidity.” It also said it was suspending withdrawals for the time being.